TAX CHANGES SIGNED INTO LAW JUNE 29TH

[Lee B]

Copied from the OSEA newsletter:

 

Tax Changes Signed into Law June 29 2015
 

Tax law changes can be included in any bill sent to the President, or so it seems.  Such is the case with the Defending Public Safety Employees' Retirement Act, also known as Public Law 114-26 (formerly known as HR 2146) and the Trade Preference Extension Act of 2015 (TPE 2015), also known as Public Law 114-27 (formerly known as HR 1295).

 

Here are the tax provisions included in these laws signed on June 29, 2015.

 

Form 1099 Penalties effective with returns required to be FILED after December 31, 2015 (i.e., for calendar years 2015 and later).

1. The penalty under Section 6721 for not filing correct information returns increases.  (Not filing a required information return is considered not filing a correct information return.)
   1. The penalty is $250 per return (an increase from the previous $100 per return penalty).
   2. If there is an unintentional delinquency and it is corrected no more than 30 days after the return due date, the penalty is reduced to $50 per return (formerly $30 per return).
   3. If there is an unintentional delinquency and it is corrected more than 30 days after the return due date but on or before August 1, the penalty is reduced to $100 per return (formerly $60 per return).
   4. The penalties above still have maximum amounts, but of course these maximums increased compared to prior years.
   5. The penalty for intentional disregard also increased from $250 per return to $500 per return.
2. The penalty under Section 6722 for not furnishing information returns (i.e., Forms 1099) to payees increases.
   1. The penalty is $250 per return (an increase from the previous $100 per return penalty).
   2. If there is an unintentional delinquency and it is corrected no more than 30 days after the return due date, the penalty is reduced to $50 per return (formerly $30 per return).
   3. If there is an unintentional delinquency and it is corrected more than 30 days after the return due date but on or before August 1, the penalty is reduced to $100 per return (formerly $60 per return).
   4. The penalties above still have maximum amounts, but of course these maximums increased compared to prior years.
   5. The penalty for intentional disregard also increased from $250 per return to $500 per return.
3. Education institutions are exempt from these penalties for not having TINs of the students on the Form 1098T if the institution complies with the IRS rules on obtaining TINs.

The total penalties for a taxpayer who does not prepare a required Form 1099 is now $500 per Form 1099 ($250 for not sending a copy to IRS plus $250 for not giving a copy to the payee).

 

Education Credits and Tuition Deduction

Effective with tax years beginning on or after June 29, 2015, no education credit (American Opportunity Credit, Hope Scholarship Credit, or Lifetime Learning Credit) or tuition deduction is allowed unless the taxpayer receives a Form 1098T.  A statement received by the dependent is treated as if it was received by the taxpayer.

 

[Since IRS now requires school information on the Form 8863, this change requiring a Form 1098T to exist isn't too surprising.  Each of us will have to decide if we want to see the Form 1098T or if we just want to confirm with the taxpayer that it exists.]

 

Child Tax Credit

Effective with tax years beginning after December 31, 2014, the refundable portion, if any, of the child tax credit is DENIED for any taxpayer who excludes any amount of gross income using the foreign earned income exclusion [i.e., Form 2555].

 

 

The Health Coverage Tax Credit under Section 35 which expired December 31, 2013, is now extended through December 31, 2019.  To be eligible for this credit taxpayers must qualify for Trade Adjustment Assistance (TAA) or be an eligible Pension Benefit Guaranty Corporation (PBGC) pension recipient.

 

The "Public Safety Employee" exception to the 10% penalty for early distributions from retirement plans is expanded to include Federal employees who are law enforcement officers, customs and border protection officers, firefighters, or air traffic controllers

[Margaret CPA in OH]

 

I think it's about time to fire one of my clients.  They are great folks but have an LLC with rental properties some of which they also sell.  Year after year the transaction records fail to arrive until about March or April then generate lots of questions which take weeks to answer.  As they have member loans and often put money into the LLC and pay themselves from time to time, I never can get the loan interest calculated timely for the 1099 filing. 

I know they have paid penalties a few times but I don't want to be held responsible when the delay isn't my fault.  Are these penalties on me or the client?  I can't prepare and file forms when I don't have the data. 

Hmmmm, retirement....

[Jack from Ohio]

How about the phrase... "...did know or should have known..." in Circular 230?

[Margaret CPA in OH]

How about that phrase?  Frankly, I couldn't find it just now in my quick review of Circular 230 but, in 182 pages, I could have missed it easily.  What is you interpretation of that phrase?  Should I have known the amount of interest without having the data in hand to prepare Form 1099?  I'm not sure of the meaning of your response and would appreciate some clarification.

This client's returns have been completed for over 6 weeks now and they have not yet scheduled a review and pick up time.  They emailed last week that Mondays and Fridays are good but, when offered last Friday or yesterday, I received no reply at all.  Their identity was compromised in February so one might think they would like to get this out of the way.  I certainly want it off my desk.

[Catherine]

I might have to fire one of mine, as well.  I have *never* received 1099-MISC information from him earlier than August - and once as late as November.  He is a chronic late filer, regularly missing the October filing deadline.  I don't want to deal with him if/when he gets hit with these penalties.  

[Jack from Ohio]

I might have to fire one of mine, as well.  I have *never* received 1099-MISC information from him earlier than August - and once as late as November.  He is a chronic late filer, regularly missing the October filing deadline.  I don't want to deal with him if/when he gets hit with these penalties.  

How about making your fees for filing them late the same as the IRS penalties?

[Catherine]

How about making your fees for filing them late the same as the IRS penalties?

Tempting....  

I usually charge $15 per 1099, which includes paper copies to recipients and for records, and e-filing of originals.  The year I got his stuff in frimping *November* I charged the $15, plus a $45 late fee for each.  So he paid quadruple my normal rate.  The next year, I got stuff in *August*; so I only charged him a $30 late fee per form.  

He is definitely one of the "war stories" clients we all have!

[Jack from Ohio]

Tempting....  

I usually charge $15 per 1099, which includes paper copies to recipients and for records, and e-filing of originals.  The year I got his stuff in frimping *November* I charged the $15, plus a $45 late fee for each.  So he paid quadruple my normal rate.  The next year, I got stuff in *August*; so I only charged him a $30 late fee per form.  

He is definitely one of the "war stories" clients we all have!

For him, you are way too cheap!!  Add an aggravation factor. 

[kcjenkins]

Just keep raising his fees until he either speeds up or decides to go elsewhere, Cat.

Each of us will have to decide if we want to see the Form 1098T or if we just want to confirm with the taxpayer that it exists.

 I think I'd have to see it, given that it is going to be so critical going forward.  

[Catherine]

Just keep raising his fees until he either speeds up or decides to go elsewhere, Cat.

 I think I'd have to see it, given that it is going to be so critical going forward.  

Regarding that 1098-T, KC.... yes, you will want to see it.  Just don't believe anything ON it!  I have seen SO many frimping mistakes on those things they really do resemble fairy tales more than cash flow statements.  There's a hint of truth in there somewhere - if you can find it.  

[Jack from Ohio]

Regarding that 1098-T, KC.... yes, you will want to see it.  Just don't believe anything ON it!  I have seen SO many frimping mistakes on those things they really do resemble fairy tales more than cash flow statements.  There's a hint of truth in there somewhere - if you can find it.  

We require a copy of the account statement from the college.  You can only claim amounts PAID in any given year.  1098-T information is worthless.

[kcjenkins]

That's my experience too, never saw one that was 100% correct.  

[SaraEA]

Regarding the 1099 penalties, I have a client with scads of rental properties in a partnership.  (The majority partner is a grantor trust, so it all ends up on his return anyway.)  He pays people to manage some of the properties and also hires contractors to do repairs/renovations to some of them.  Every single year I warn him that the IRS can disallow any payments for which he did not issue a 1099.  Every single year I add the warning to the notes in our electronic file cabinet (so he can't blame me).  Every single year I check yes for the box "were you required to issue 1099s?" and check no for the box "did you issue them?"  Not a peep from the IRS yet.  Maybe with the bigger bucks they can collect now their enforcement efforts will change.  Think I'll email the client the relevant paragraphs from the original post.

The irony is that if these properties weren't in a partnership, 1099s wouldn't be required.

Oh, this guy also has a big Sch C business that pays lots of subcontractors (total $200k or so).  He makes sure to get me the info to issue the 1099s on these folks.  Guess he can't say he didn't know....

Another thing, this guy always goes on extension and even then is sometimes late.  Last year he got around to filing Oct 20, and the IRS fined him all the way back to April 15.  The fine is per partner (him and his trust, in other words him and himself), so he paid big time. Some people will never learn.  I'd fire him except that we charge him megabucks so it's worth the aggravation.  Still, I wish he'd go away.

 

[BulldogTom]

Regarding that 1098-T, KC.... yes, you will want to see it.  Just don't believe anything ON it!  I have seen SO many frimping mistakes on those things they really do resemble fairy tales more than cash flow statements.  There's a hint of truth in there somewhere - if you can find it.  

The problem is that congress or the IRS will not require the institutions to report on a calendar year.  What they let them get away with is amazing.  It is the equivalent of letting a corporation on a fiscal year report their 1099's for the company's year rather than the calendar year.

I don't get that one.  Is there anyone who knows a congressman with an ounce of common sense?

Tom
Newark, CA

[Jack from Ohio]

I don't get that one.  Is there anyone who knows a congressman with an ounce of common sense?

He rode up on his unicorn and told the truth...

[kcjenkins]

Is there anyone who knows a congressman with an ounce of common sense? 

I don't think so, I think they are required to store their common sense in the SS Lockbox while they are in office.

[Catherine]

<snip>

Another thing, this guy always goes on extension and even then is sometimes late.  Last year he got around to filing Oct 20, and the IRS fined him all the way back to April 15.  The fine is per partner (him and his trust, in other words him and himself), so he paid big time. Some people will never learn.  I'd fire him except that we charge him megabucks so it's worth the aggravation.  Still, I wish he'd go away.

 

On another board, a couple of years ago, one tax pro wrote in with his story:

He'd always heard the "double their fee every year until you like them OR they go away" and decided to try it in his main PITA client.  Bookkeeping, tax, tons of long-winded questions, the same mistakes every month - we all know the type.  Was charging him $1,250/year.  Doubled it to $2,500/year and they STILL drove him nuts.  Doubled the next year to $5,000 and he still could not stand them.  Doubled it *again* to $10,000 - and they are now some of his favorite clients!  They pay on time, make the same mistakes and call with the same long-winded questions -- but now that he is getting compensated fairly, (as my older daughter says) "it's all shiny!"

One key is the "paying on time" part.  I doubt they would be his favorite clients if he had to hound them to pay his bills.  

Maybe, Sara, it's time to double their fee.  

[Terry D EA]

Margaret,

I personally don't see how you could be held responsible for the lack of responsibility on the part of your client. I agree you can't act unless you have the information to act. I don't understand Jack's comment either. How could anyone have known the amounts you were waiting for. I take the same position with an S-Corp client of mine who is notoriously late and has escaped late filing penalties for the last four years. I have just completed 2013 & 2014 for him. Sure,  I knew these returns were due but how could I possibly be penalized when I never received any of the books. As I stated to this client, I make no assumptions for anyone. Remember, it is the client who is ultimately responsible for an accurate and timely filed tax return regardless of the vehicle he/she used to file it. JMHO.

 

I think it's about time to fire one of my clients.  They are great folks but have an LLC with rental properties some of which they also sell.  Year after year the transaction records fail to arrive until about March or April then generate lots of questions which take weeks to answer.  As they have member loans and often put money into the LLC and pay themselves from time to time, I never can get the loan interest calculated timely for the 1099 filing. 

I know they have paid penalties a few times but I don't want to be held responsible when the delay isn't my fault.  Are these penalties on me or the client?  I can't prepare and file forms when I don't have the data. 

Hmmmm, retirement....